Time Warner Would Pay $1.725B Break-up Fee If AT&T Fails

Time Warner Inc. has agreed to pay a $1.75 billion break-up fee to AT&T if it accepts a competing offer from the telco’s mega-deal, with the phone company is on the hook for $50 million if it can’t obtain the necessary regulatory approvals for the $108.7 billion merger.

AT&T agreed to purchase Time Warner in a cash, stock and assumed debt transaction that values the programmer at $107.50 per share over the weekend. The deal would combine the largest pay TV distributor in the country with the second largest content creator.

According to an 8-K document filed with the Securities and Exchange Commission Monday, Time Warner will have to pay the break-up fee if the AT&T deal si terminated if the programmer enters into an “alternative acquisition agreement,” that did not result in a material breach of the original deal with AT&T.

AT&T is on the hook to pay Time Warner $500 million if the deal is terminated for circumstances “ relating to the failure to obtain approvals, or there is a final, non-appealable order preventing the transaction, in each case, relating to antitrust laws, communications laws or utilities laws.”

Either party can cancel the deal is it does not close by Oct. 22, 2017, or in the case of special extensions, April 22, 2018.

Time Warner also disclosed incentives to keep four key executives with the company during a transition period – chief financial officer Howard Averill; EVP and general counsel Paul Cappuccio; EVP international & corporate strategy Olaf Olafsson; and EVP corporate marketing and communications Gary Ginsberg.

According to the 8-K, Time Warner extended the terms of Averill’s, Cappuccio’s, and Olafsson’s employment agreements to Dec. 31, 2019 on substantially the same terms as prior extensions. Ginsberg’s agreement also has been extended to Dec. 31, 2019, and in 2017 his annual salary will increase to $900,000 and the target value of his annual long-term incentive compensation will rise to $1.25 million.

In addition, the executives will receive special retention restricted stock units (RSUs) and cash awards: Averill will receive $9.2 million in RSUs and $1.75 million in cash; Cappuccio will get $6.8 million in RSUs and $1.575 million in cash; Olafsson will receive $2.8 million in RSUs and $693,700 in cash; and Ginsberg will receive $2.5 million in RSUs and $900,000 in cash.

Time Warner chairman and CEO Jeff Bewkes did not receive any RSU awards, but the terms of the deal provide the board with the authority to grant him special retention RSUs in February 2017 equal to twice the value of his long-term incentive compensation.